Cashew factory workers in Agartala, north-east India. During the deshelling process the nuts produce a caustic liquid that burns the skin. Photograph: AFP/Getty

NGOs are calling on the EU to endorse regulation rather than voluntary guidance to improve the conditions of workers such as cashew nut farmers and processors at the foot of international supply chains.

Next month, the European commissioner for internal markets and services, Michel Barnier, will make an announcement on unfair trading practices for discussion by the parliament.

Liz May, head of policy at Traidcraft, which helps fight poverty through trade, said: "Farmers and workers across the world are suffering every day because of unfair trading practices by supermarkets. It's time the EU took action and set up a regulator with the power to stop abuses by retailers that result in extremely low pay and appalling working conditions."

Cashews are America and Europe's favourite nut. But the poor farmers who grow the premium product often bear the greatest risk in the trade.

More than 60% of the cashews consumed globally are processed in India. The industry is critical to the country, particularly to the south. The nut is among the country's top four agricultural exports, along with basmati rice, spices and tea. Last year exports were about £500m.

Most of the processing takes place in Goa, Bangalore, Kerala, Kanyakumari, the cape at the extreme tip of India, Panruti, near the old French colony Pondicherry, then Chennai and Rajahmundry, further north in Andhra Pradesh state. In each of these regions approximately 50,000 to 100,000 people work in the industry, making cashews vitally important to local economies.

Hari Krishnan Nair, chairman of the Cashew Export Promotion Council of India, who also runs his own business processing and exporting the nut, said: "We have approximately 1 million people engaged directly in the processing of cashews, and another 200,000-odd people who are engaged in the growing of cashews in the country. If you also look at the people dependent on this, you are talking about a very, very large number of people."

Many of the nuts produced in India are sold in supermarkets in the EU, often with value added through roasting and salting. But a 2007 ActionAid report highlighted the pressure from UK retailers to drive down prices. The anti-poverty agency argued that too many of the costs and risks of trading cashews were transferred down to those least able to withstand them, and revealed a rise in unofficial processing units where margins are smaller and hazards higher. Some women were earning the equivalent of 30p a day and suffering permanent damage to their hands from corrosive liquid during handling the nuts.

To some extent, things have changed. In the UK a groceries ombudsman, Christine Tacon, has been appointed to work with supermarkets to respond to anonymised complaints from suppliers and balance the buying power of the biggest companies. The 10 biggest UK supermarket chains each have an annual turnover of more than £1bn. But NGOs are lobbying for strong legislation at EU level.

In India, the cashew-growing season is from March to May. Most farmers, especially the small-scale ones, do not make large profits and face increasing competition. India grows approximately 700,000 tonnes of cashews and imports about 60% of the nuts it processes. Once they are harvested, the cashews are sent for processing, which takes place in factories and at workers' homes. Shelling the nuts is labour intensive and is usually done by hand.

Sunita, who works in a government-run factory, has been deshelling nuts for 39 years. She says her back hurts and she has joint pain, especially in her shoulders, as do most of her colleagues. She also has arthritis and diabetes.

Cashew fruit hangs from a tree in Karnataka, India. More than 60% of the cashews consumed globally are processed in India. Photograph: Bloomberg via Getty Images

Her role requires that she sits in the same position for most of the day and repeatedly strike the hard outer shell of the nut. "There is no other way. I have to do this kind of work," she said. In her experience, it is the buyers and processors who reap the rewards from the industry. Her working conditions have improved – Sunita says she is free to take toilet breaks, at least. However, it remains difficult for her to save any money.

Cashews are a luxury product, served domestically at celebrations such as Eid and Diwali. Some factory workers say they are checked routinely to ensure they are not smuggling the nutritious nut.

Factories trading with supermarkets in Europe and the US must adhere to safety standards. Workers usually wear hair nets and there are inspection certificates displayed on factory walls.

During the deshelling process the nuts produce a caustic liquid that burns the skin. In some cases, hand protection is available, such as alkaline pot ash to counteract the acid; alternatively, some women bandage their hands. In some factories, rubber gloves are available, but in many instances workers have to pay for them and not everyone can afford it.

Mohana Kumar, project director of Cadre India, an NGO in Tamil Nadu that supports self-help groups for women and raises health awareness among factory workers, has carried out research on whether International Labour Organisation core conventions on working conditions have been met.

"When people are getting 1 rupee (1p) as their wage, they are spending 50 paisa for their savings, for the marriage of their children, because here a big dowry system. And 10 paisa they will spend for their food. So [there are] malnourished children, and that means the next generation is in danger … Quality of life means spending for health, especially good food."

Nair said Indian rules remained strict about factory facilities. "A lot of the companies have a lot of the facilities required, but, as in any country, there will be some companies that follow practices that are required to the letter of the law, and other companies which do not."

In the past 10 years, the amount of cashews processed in India has increased significantly because farmers, particularly in Africa, have found the nut to be a good crop to grow in the tropics. Indian buyers are well-established in west, east and southern Africa, but face increased competition from Vietnam and Brazil. However, processors claim the global economic slowdown in recent years has pushed prices down significantly.

Factory owners report pressure on yields, earnings and terms of trade, saying that standards are at risk when they have to deliver low prices. Some traders complain of a hefty mark-up because retailers claim that cashew is a slow product to move off the shelf.

Meanwhile, processors and brokers bemoan the fact that retailers are driving the market and prioritising low price above all else. As one producer put it: "Twenty years ago Europe was a booming market and quality was a primary concern, but today it is only about the price … The value of relationships is not appreciated."

• This article was amended on the 5 November to reflect the fact that Commissioner Barnier's announcement is expected in December not November